Marketocracy Mastershttp://blogs.forbes.com/kenkam
Tue, 07 Jul 2015 18:52:00 +0000en-UShourly1http://wordpress.org/?v=3.9.2What Top Managers Are Looking For In Greece Discussionshttp://www.forbes.com/sites/kenkam/2015/07/07/what-top-managers-are-looking-for-in-greece-discussions/
http://www.forbes.com/sites/kenkam/2015/07/07/what-top-managers-are-looking-for-in-greece-discussions/#commentsTue, 07 Jul 2015 18:51:00 +0000http://blogs.forbes.com/kenkam/?p=3237Investors are seeing their portfolios whipsawed by the game of Russian roulette Greece is playing with the E.U. Among Marketocracy’s top managers, there is general agreement that the best times to invest are when everyone is scared, but they are waiting to see how the crisis will be resolved before pulling the trigger. Here is my take on what our top managers are looking for.

The situation as we see it

Greece wants their creditors to both forgive their old debts, and also to give them new loans so they can continue to spend more than their own economy can support.

Greece’s creditors are unwilling to forgive Greece’s debts, but they are willing to grant them new loans on the condition that the Greek government reduce its budget deficit by a combination of raising taxes and reducing spending,

BRUSSELS, BELGIUM – JULY 7: In this photo provided by the German Government Press Office (BPA), Greek Prime Minister Alexis Tsipras (2nd R), German Chancellor Angela Merkel (4th L), European Commission President Jean-Claude Juncker (2nd R) and French President Francois Hollande (R) talk during a meeting prior to the emergency Euro Summit, on July 7, 2015 in Brussels, Belgium. President of the EU Parliament Martin Schulz has said that the consequences of the Greek referendum result, which rejected the European Bailout deal with great majority, has increased the risks of national bankruptcy in Greece. (Photo by Bundesregierung via Getty Images)

Marking down existing debt

It is time for Greece’s creditors to acknowledge that their past loans are not going to be repaid in full. There is no bank regulator in the world who could say with a straight face that value of these loans has not been impaird.They are clearly not worth 100% of their face value, so marking them down is just recognizing what has already happened. Pretending otherwise is not helping the situation.

New Money For The Greek Government

Because interest rates on Greece’s debt are so low, writing off Greece’s debt will not reduce their current budget deficit by that much. Even if all of Greece’s debts are forgiven, Greece would still need to borrow fresh money, cut their expenses, or increase tax revenue.

The IMF estimated that the government of Greece needs another €60 billion to cover its ongoing budget deficit for the next 2 years.

No private investor is going to lend the Greek government new money on better terms than the package their citizens have already voted down. There is little doubt that a majority of citizens in any country Greece seeks new loans from would vote against it.

If Greece turns to Russia or China for new loans, this would bring a potentially hostile power to Europe’s doorstep and is one reason the situation feels like a game of Russian roulette.

Making good on insured bank deposits

In a Grexit scenario the Greek government would confiscate the euros deposited in Greek banks and replace them with drachmas that by some estimates would quickly lose 40% of their value. If this happens, depositors in other troubled euro countries will have good reason to have doubts about the safety of their money.

If Greek deposit insurance is shown to be an empty promise, the risk of bank runs in other euro countries will rise.

To prevent this, the countries behind the euro should make insured Greek bank depositors whole. Giving Greek citizens access to their insured bank deposits will demonstrate a significant benefit of being part of a monetary union and strengthen that union by reducing the risk of further bank runs in Greece and other euro countries.

This needs to be done in a manner that prevents the Greek government from taking the euros from these accounts and replacing them with drachmas. This could be accomplished by having a bank outside of Greece’s jurisdiction (perhaps the ECB) take over Greece’s failed banks. If this is viewed as an affront to Greece’s sovereignty, perhaps Tsipras can call a referendum so Greek citizens can decide if they want access to their bank accounts.

We think it is time for creditors to write down the debt and for the E.U. to assure Greek depositors that their money is safe and will not be confiscated by the Greek government.These steps would protect the euro, while also discouraging other countries from going down the same path.

If Alexis Tsipras gets his way, there will be other countries that will want the same deal. We think that would signal the beginning of the end of the E.U. and all investors will have to make adjustments.

About my column. Click on the word “Follow” under my picture to be notified when future articles are published. You will then be able to choose whether to notified immediately after each article is published, or just once per week.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.

]]>http://www.forbes.com/sites/kenkam/2015/07/07/what-top-managers-are-looking-for-in-greece-discussions/feed/0Navigating The Latest Greek Tragedyhttp://www.forbes.com/sites/kenkam/2015/06/30/navigating-the-latest-greek-tragedy/
http://www.forbes.com/sites/kenkam/2015/06/30/navigating-the-latest-greek-tragedy/#commentsTue, 30 Jun 2015 17:45:00 +0000http://blogs.forbes.com/kenkam/?p=3233The news that Greece has limited withdrawals from banks to $67 per day and scheduled a referendum on whether to accept its third bailout package has many people worried about how this latest Greek tragedy will affect their investments. Here’s what I’ve been saying to our clients who have called.

First, none of Marketocracy’s Masters are betting on the Greek situation to be resolved one way or the other. Our Masters all have their own investment styles — value, growth, core, explore, etc. A smooth resolution to the Greek crisis is not required for the success of any of these investment styles.However, the Greek crisis will create volatility which will bring the prices of some stocks to attractive levels.

The best thing we can do is to give the Masters the latitude to make adjustments as they see fit. After all, the Masters have better track records than most people, including most mutual fund managers. They have made good decisions throughout the previous Greek tragedies, and the many other bouts of market volatility we’ve faced over the past 10 years and that’s why we should trust their judgment now.

You can over-ride their decisions. But, I would recommend it only if something has changed in your financial situation or objectives. Otherwise, let us leave the day-to-day investment decisions to the guys with the best track records.

Will Portugal and Spain follow Greece? (photo credit: AP)

Second, being an investor requires an optimistic outlook on the future. How the Greek situation is resolved will tell us much about whether continued optimism is justified.

Greece is not the only country where spending exceeds revenue. But, this can continue only as long as someone is willing to finance the difference.

The current Greek situation came to a head when the people who were financing their deficits (the Germans) realized that their money was being used to provide Greeks much richer government pensions than they could provide for their own people. When the Germans made Greek pension reform a condition of further financial assistance, the Greek government called for a referendum in which Greek citizens will vote on whether to accept these terms.

I don’t know how the vote will go on Sunday. What I am watching is whether the outcome is something Portugal and Spain will want to emulate. If so, then the prospects for the E.U. will have diminished considerably.

In this event I think it is best that we let the people with the best track records sort out the winners from the losers but it will probably make sense to change our mix of managers so we have less riding on the outcome of the E.U.

More to come.

About my column. Click on the word “Follow” under my picture to be notified when future articles are published. You will then be able to choose whether to notified immediately after each article is published, or just once per week.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.

]]>http://www.forbes.com/sites/kenkam/2015/06/30/navigating-the-latest-greek-tragedy/feed/0After Gaining 25%, Northwest Bio Is Still A Best Ideahttp://www.forbes.com/sites/kenkam/2015/06/12/after-gaining-25-northwest-bio-is-still-a-best-idea/
http://www.forbes.com/sites/kenkam/2015/06/12/after-gaining-25-northwest-bio-is-still-a-best-idea/#commentsFri, 12 Jun 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3227Northwest Bio (NASDAQ:NWBO) is up over 25% since Marketocracy Master Branko Krstevski called it a best idea on March 8, 2015. When a stock appreciates 25% in just 3 months, there is a strong temptation to sell it to “lock in profits.” But, Branko is not selling. Here’s why.

Ken: You’re having a great year! As of the end of May your Marketocracy model is up 18.44% year-to-date, and your best idea, Northwest Bio, has done even better. It is rare for stocks to gain 25% in 3 months. What has happened in the last 3 months to justify this big gain?

The Phase 1 trial has so far easily met its primary endpoints of safety and tolerability, the trial is on going. The vaccine continues to show an excellent safety profile without chemo/radiation like side effects. The vaccine also shows promising signs of effectiveness across a broad range of cancers. The company is preparing to move DCVax-Direct to Phase 2.

Ken: Phase 1 is still pretty early in the drug development process. What did the phase 1 trials show?

Branko: The Phase 1 study enrolled 40 patients with late stage4 cancers, the patients had 3 inoperable tumors on average and a poor prognosis. The trial covered 13 different cancers included lung, sarcoma, pancreatic, breast and melanoma.

The purpose of the Phase 1 trial is mainly to test the vaccine’s safety and tolerability. The safety findings are excellent. Patients injected with DCVAX-Direct mainly experience minor side-effects usually mild fevers after their injection. 2 grade3/4 Adverse Events were reported, one for dehydration and one for systemic inflammatory response syndrome. A maximum tolerable vaccine dose was not reached.

The trial also looked at patient survival and tumor response. The findings are encouraging. The vaccine appears to invoke an immune response at the tumors and in many cases stabilizes the disease across the broad range of cancers tested.

27 of 39 patients (69%) are still alive at up to 18 months after their first injection. While these are impressive survival figures they are from a very small patient population. The next Phase 2 trials will specifically test the vaccine’s effectiveness.

Two different versions of the DCVax-Direct vaccine were tested. A group of 21 patients were injected with the Method B version of the vaccine. 18 of those patients (86%) are still alive at up to 18 months after their first injection, another impressive survival response.

The other Method A version of the vaccine was considered inactive, 9 of 18 (50%) patients are still alive.

Considering these are survival results from very sick stage4 cancer patients from a range of different cancers. NWBO’s vaccine shows positive enough results to move onto Phase 2 clinical testing.

Ken: What is the plan for phase 2 trials?

Branko: NWBO is planning to now run three separate Phase 2 trials. Two trials will test separate cancer indications, one for non-small cell Lung Cancer and the other for Sarcoma. The third trial will test various solid cancers like their Phase 1 study did.

NWBO will be making several trial treatment changes for Phase 2 to improve their vaccine’s performance. Their next trials will only use one vaccine version (Method B), more tumors will be injected (up to three per patient), and the frequency of injections and the duration of treatment will be increased. These changes should improve patient responses.

Ken: What makes NWBO’s vaccines unique?

Branko: They claim their dendritic cell based cancer vaccine is able to educate and direct the human immune system to attack all cancer cell antigens. Cancers are known to each carry thousands of different antigens so it makes sense that attacking all of them is your best approach at defeating the cancer.

Ken: Are there other companies developing similar drugs?

Branko: There are other companies also developing dendritic cell based vaccines but their treatments are designed to attack a single or several cancer antigens so their approaches are likely to have more limited successes with the fight against cancer. Examples of other companies developing dendritic cell based cancer vaccines include Immunocellular Therapeutics (IMUC), Argos Therapeutics (ARGS), Prima Biomed (PBMD), and the former Dendreon (DNDNQ).

Ken: With the stock already up 25% in the last 3 months, how much further can it go?

Branko: I think the share price will continue trending up this year. Without surprises, I think the share price will climb near the $13 level by the end of 2015.

Ken: Are there any near-term catalysts investors should be watching for?

Branko: One imminent catalyst is a full enrollment announcement for NWBO’s lead vaccine candidate, DCVax-L at Phase 3 for Glioblastoma (GBM). DCVax-L’s first interim efficiency analysis will closely follow. Also an announcement is likely in the coming months on commercial negotiations with German hospitals (HE) for early compassionate use of DCVax-L. Final Phase3 DCVax-L data is expected near summer in 2016.

Ken: How much do you think the company is worth at this stage of its development?

Branko: The market valuation for NWBO is around $660M, still significantly lower than many small biotech companies developing immunotherapy treatments. I think a market cap around the $2.0B mark would be a fairer value. $2.0B would place NWBO amongst the leaders of its peers (KITE, JUNO). The market does not consider NWBO a leader in immunotherapy. I do, I see them as having an exciting vaccine platform with a superior mechanism of action (attacks all cancer antigens) that can theoretically be used to treat all solid cancers, and their vaccines are also showing superior safety profiles. When the market realizes NWBO’s full potential its market cap will quickly reach the levels of its peers.

Short interest remains high in this stock at 23%. More positive patient data will eventually soften and sway many of these cancer vaccine and NWBO skeptics.

Ken: Does the company have the capital it needs to fund their clinical trial programs?

Branko: NWBO’s financial position is improving. Recently, UK’s famous investor Neil Woodford backed NWBO with investments over $65M. NWBO should have enough funds to run operations into late 2015. Their future financing will come easier now that their vaccines are further advanced and less uncertain.

Ken: Thanks Branko.

My Take: Buying high potential biotech stocks after bad news has taken all of the fluff out of the stock price has proven to be a sound strategy for more than one Marketocracy Master. In this case, NWBO had been hit hard at the end of 2014 after being on the receiving end of negative coverage by Adam Feuerstein of theStreet.com.

It takes positive clinical results to overcome the negative publicity and Northwest Bio has delivered.

About my column. Click on the word “Follow” under my picture to be notified when future articles are published. You will then be able to choose whether to notified immediately after each article is published, or just once per week.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.

]]>http://www.forbes.com/sites/kenkam/2015/06/12/after-gaining-25-northwest-bio-is-still-a-best-idea/feed/6SMU’s Top Manager Competition Prepares Students For Wall Streethttp://www.forbes.com/sites/kenkam/2015/05/15/smus-top-manager-competition-prepares-students-for-wall-street/
http://www.forbes.com/sites/kenkam/2015/05/15/smus-top-manager-competition-prepares-students-for-wall-street/#commentsFri, 15 May 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3214People have paid millions to have a single lunch with Warren Buffett. So what is it worth to take a semester long class on investing from a teacher with an outstanding track record like Warren Buffett’s? Southern Methodist University in Dallas, TX offers just such a class taught by Professor Joseph Dancy. With graduations just around the corner, I checked in with Professor Dancy to learn how a great investor prepares students for careers in the money management industry.

Over the past 10 years, Joe’s Marketocracy model portfolio has returned a little more than 16%, which compares well with Berkshire Hathaway’s return of about 10% for the same period.

Ken: Joe, can you tell me about your students this semester?

Joe: I taught 2 groups of students this semester. The first group was comprised of 17 undergraduate students who were selected to manage the SMU Spindletop Fund which is a real-money energy sector fund. The second was an energy and environmental law class where the students’ career goals were more diverse.

Ken: How do you prepare your students for careers in the money management industry?

Joe: This semester, I used Marketocracy to run an investment competition in which students were required to come up with a compelling strategy and then make some trades and explain the results. As with most classroom investment competitions, the student with the highest return is declared the “Top Gun.” But, in our case, on the last day of the competition, I asked the students to allocate a hypothetical $100,000 into the portfolios of their fellow students and the person who got allocated the most assets was named the “Top Manager.”

There is a big distinction between the Top Gun and the Top Manager (Photo credit: Joe Dancy)

Ken: Why do you make such a distinction between the Top Gun and the Top Manager?

Joe: I do it because succeeding in the investment world depends as much on your ability to explain your strategy and decisions as it does on your returns. Everyone expects that you can’t succeed if you have bad returns. But it is not as obvious that you also can’t succeed even if you have great returns if you can’t explain how you got them.

Ken: What were some of the strategies that your students came up with?

Joe: Many of the student managers of the Spindletop Fund took advantage of their extensive research in the energy sector and the feedback from our Fund oversight panel of investment bankers and hedge fund managers to allocate a majority, if not all, of their Marketocracy capital in the energy sector. In January, The Spindletop Fund students forecasted higher crude oil prices as the quarter progressed which they thought would spark a major rally (from depressed lows) in energy equities when the competition began.

While making an energy sector bet many students realized that the stocks of smaller companies make larger moves more quickly (are more volatile/risky) and allocated funds to small and microcap firms that are under-followed. The share price of these small firms were more adversely impacted by the crash in oil prices in the fourth quarter of 2014, so they were expected to recover strongly as oil prices stabilized and increased. Using this strategy some students allocated funds to small and microcap firms in the technology and biotech sectors also, with less success.

Ken: Did the strategies change as the competition progressed?

Joe: The underperforming students realized that they needed substantial gains toward the end of the investment period and tended to make more risky positions in an attempt to ‘catch up’ with the better performers. In most cases this strategy did not work well. One participant attempted to game the system by trading on Marketocracy’s delayed quote system using a live data feed. His takeaway was do not trade when you are desperate, in the end he underperformed the S&P 500 index.

Ken: How did your students do?

Joe: The three month semester is much too short to test an investment strategy. Only over a longer period of time can a student enhance their skills with ‘defined practice’ (the ’10,000 hour rule’ discussed in Gladwell’s ‘Outliers” or some of Dr. Andressen’s research on expertise). The ending statistics (alpha, beta, Treynor ratio, R squared, etc.) are all probably not statistically significant so decisions made on this data most likely will be flawed, or at the best random. My multimillion dollar LSGI Fund portfolio has been actively managed for almost 16 years now and the statistics for alpha, beta, R-squared and the like are still not ‘significant’ from a statistician’s standpoint. The joke is once you find a manager who has been around enough to generate statistically significant excess returns (alpha) they will be retiring – or dead.

Ken: What were the major lessons learned?

Joe: Only seven students outperformed the S&P500 ETF during the contest period. No student manager who underperformed the S&P 500 ETF received any funds to invest from other students at contest end. This points out two things: (1) it is difficult to be an active manager, even in a sector that is doing well, and outperform the major market indexes (which means this skill should be highly compensated), and (2) if you can’t outperform the benchmark index the investor attitude seems to be that an index tracking fund is a better decision from a risk/reward standpoint.

Ken: So who was the Top Manager?

Joe: This year’s Top Manager is Nicholas Spain whose portfolio was up 27.86% and attracted 32% of the amounts allocated by his peers. Interestingly though, Charles Landon whose 14.21% return ranked him #3, got the 2nd largest allocation of 27% from his peers. Caswell Prewitt, the student who ranked #2 with a return of 22.82% received the 4th largest allocation of 12.5%.

Ken: Turning to the students now, how did Professor Dancy’s competition prepare you for a job in the investment industry?

Nicholas: As someone who is very interested in working in the investment industry after I graduate, this competition prepared me by providing an opportunity to practice and work on my skills, while also building a successful track record, which I can now show to potential employers as a way to distinguish myself from other candidates.

Charles: Because the competition was over such a short time frame, we had to find winners that were going to perform right now. In the investment industry, you need to find investments that are going to give you above average returns over a longer timeframe. With oil markets getting crushed in the fall and the winter, it was clear to me that many of the E&P companies in these core areas of the best U.S. basins were an opportunity to make a quick return. In the investment industry, your job is to make a return on your investors money, and mock situations like Marketocracy gave me a great opportunity to prepare for the real deal.

Caswell: The Top Gun contest spawned competitiveness among our Spindletop group, and greatly improved our research skills. While my portfolio predominately comprised small-mid cap energy companies, I always tried to stay open to ideas that weren’t in my comfort zone but had similar growth potential. Much like the real world of investing, we could see the numbers and ratios of our competitors, but never really knew what they were holding. This taught me to stick to my guns and map out a pace I was comfortable with rather than chase the leader. It was a great time to uncover undervalued energy companies, and focusing on that sector proved a successful strategy.

Ken: Could each of you tell me what stock is your best idea right now?

Nicholas: My best stock idea right now is SM Energy (NYSE:SM), an independent oil and gas exploration and production company. Since the start of the Marketocracy competition, SM has been my best performer, with a 73.74% inception return. However, I still believe, and many of the analyst reports I follow back this up, that SM is still drastically undervalued, and could rise another 75% in the future. SM looks to be one of the best investment opportunities in the Energy sector right now.

Charles: Callon Petroleum (NYSE:CPE), is one of my favorite companies in the Permian. First of all, the company has not taken on much debt, so they are in less trouble than many of the E&P producers if oil markets collapse again. Also, they are in one of the best areas in the Midland basin, in the Wolfcamp & Spraberry plays. With many companies being undervalued right now, there is not only an opportunity for Callon to make a great return, but there is also the possibility of CPE getting acquired. Callon can still make great return even at $50 oil, which is a reason I’m so strong on them. Looking forward, I see prices recovering to in $70 range going into 2016, which gives the stock strong upside heading into 2016 as well.

Caswell: I am going to have to go with Clean Energy Fuels (NASDAQ:CLNE). T. Boone Pickens holds around a quarter of the company, and the share price crashed with oil. Even at the low point of the recent oil price drop, compressed natural gas still beat out diesel by nearly a dollar per gallon for transportation fuel. As CLNE expands infrastructure, I am confident the market will reward them when the CNG-Diesel spread widens once again, further incentivizing trucking companies to make the switch for their fleets.

Ken: I understand you are all juniors this year. What are you going to be doing over the summer?

Nicholas: I will be an intern at Texas Capital Bank this summer, working in their Energy Commercial Banking group.

Charles: I’ll be interning at a private equity firm in Dallas, EnCap Investments.

Caswell: I am going to be working as the investor relations summer intern at EnLink Midstream.

Ken: Thank you Joe, and congratulations to all of you.

My Take: Investment competitions are a part of many finance programs. What makes SMU’s competition unique is that the top manager is not necessarily the one with the highest return, but the one who attracts the biggest allocation from his fellow students. This puts the emphasis on coming up with a compelling strategy and clear explanations for performance. These are important skills that often take portfolio managers years to develop.

By helping his students develop these skills, Professor Dancy has provided them a key advantage in the competition for jobs in the investment industry. The fact that the top 3 students all have summer jobs in the industry speaks volumes in favor of Professor Dancy’s teaching methods.

All 3 of the students I talked to were juniors this year. If they maintain their Marketocracy model portfolios, they will have an 18 month track record by the time they graduate. At 18 months, their track records will still be short, but they will be 18 months longer than almost all of their competitors for Wall Street jobs.

If you are a student who would like to participate in a similar competition, click here to let me know. If I hear from enough students, I’ll set up and host the competition on Marketocracy.

About my column. Click on the word “Follow” under my picture to be notified when future articles are published. You will then be able to choose whether to notified immediately after each article is published, or just once per week.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.

]]>http://www.forbes.com/sites/kenkam/2015/05/15/smus-top-manager-competition-prepares-students-for-wall-street/feed/0Novavax Gives Wall Street Underwriters A Sweet Dealhttp://www.forbes.com/sites/kenkam/2015/03/27/novavax-gives-wall-street-underwriters-a-sweet-deal/
http://www.forbes.com/sites/kenkam/2015/03/27/novavax-gives-wall-street-underwriters-a-sweet-deal/#commentsFri, 27 Mar 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3197Novavax (NASDAQ:NVAX) closed at $9.26 on Tuesday. On Wednesday, the stock closed at $7.98, down nearly 14%. On Thursday, it closed at $7.58 down another 5%. Here’s what happened.

In a press release issued on Thursday, Novavax explained that they had priced an underwritten public offering of 24,137,931 shares of common stock at $7.25. As soon as the underwriters knew the price was set, they where in a position to reward their best clients by allowing them to buy stock at $7.25 that had closed on Tuesday at $9.26.

Usually, clients who get to buy stock in an underwritten offering have to agree to hold the stock for 6 to 9 months. However, clients who know they are going to get an allocation, can still short the stock before the offering is completed. In this case, those who shorted the stock on Tuesday sold for around $9.26 and were able to cover their position on Wednesday by buying stock in the offering for $7.25 for a sweet one-day gain of about $2 per share.

Novavax’s press release said “J.P. Morgan and Citigroup are acting as joint book-running managers of the offering. Piper Jaffray & Co. and Wedbush PacGrow are acting as Co-Lead Managers, Janney Montgomery Scott and Ladenburg Thalmann are acting as Co-Managers.” If you are a client of any of these firms and were not given an allocation of this offering, you now know where you stand if you were ever in any doubt.

How much did this offering cost?

In addition to paying an estimated investment banking fee of $10 million, Novavax granted the underwriters a 30-day option to purchase up to an additional 3,620,689 shares of its common stock at $7.25. Since the stock is still trading above that price, you can count on the underwriters to exercise this option in full.

Prior to the offering the company had 240,913,904 of common and preferred shares outstanding valued at $9.26 for a market cap of $2.2 billion.

As a result of this offering, the company will issue 27,758,620 new shares. The total shares outstanding is now 268,672,524 which when valued at $7.58 gives them a post-deal market cap of about $2.0 billion.

The real cost of this offering is not the $10 million in investment banking fee, it is the reduction in market cap of about $200 million.

The bottom line is that in order to raise $165 million, Novavax agreed to a deal which reduced its market cap by $200 million. Now that is expensive.

Was it worth it?

The new shareholders bought at $7.25 and with the stock trading above that level, they are clearly better off.

But those who purchased their shares before Wednesday used to own 100% of the company. After the offering, they will own, a little less than 90% of a company that now has $165 million to fund its operations. Are they better off?

Well, its better than the alternative.

None of the drugs in Novavax’s clinical pipeline are close to FDA approval. The best prospect they had to generate sales was an Ebola vaccine.

As recently as September 23, 2014, The Washington Post reported that “Ebola could potentially infect 1.4 million people in Liberia and Sierra Leone by the end of January…”

When faced with the prospect of 1.4 million people being infected with a disease that has a fatality rate north of 60%, one would like to think that the FDA, the CDC, and WHO would have cut through a lot of the red tape that would normally have held up a vaccine for years before reaching the market.

But then the unexpected happened. On January 18, 2015, The Washington Post said, “It now appears that the alarming epidemiological predictions that in large part prompted the U.S. aid effort here were far too bleak. Although future flare-ups of the disease are possible, the near-empty Ebola centers tell the story of an aggressive American military and civilian response that occurred too late to help the bulk of the more than 8,300 Liberians who became infected.”

The ebbing Ebola outbreak has greatly reduced the possibility of Novavax deriving significant revenues from its Ebola vaccine anytime soon, and that is why this offering makes sense. Even though it was expensive to raise this capital, it is better than the alternative.

Aside from the Ebola vaccine, the company has a promising H7N9 vaccine that was given fast track status by the FDA.Because H7N9 can potentially be transmitted through the air and it’s incubation period is short, the disease could spread even faster than Ebola. Clearly, the company has good opportunities to pursue with the capital it just raised. Investors should take heart that the stock is still up about 26% this year, and up 70% from a year ago.

Since the financial crisis, Wall Street’s biggest firms have become even bigger. With fewer competitors, Wall Street has become an expensive place to raise money. But, for companies with good opportunities, it is a necessity.

About my column. Click on the word “Follow” under my picture to be notified when future articles are published. You will then be able to choose whether to notified immediately after each article is published, or just once per week.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.

]]>http://www.forbes.com/sites/kenkam/2015/03/27/novavax-gives-wall-street-underwriters-a-sweet-deal/feed/2TG Therapeutics Is A Best Ideahttp://www.forbes.com/sites/kenkam/2015/03/24/tg-therapeutics-is-a-best-idea/
http://www.forbes.com/sites/kenkam/2015/03/24/tg-therapeutics-is-a-best-idea/#commentsTue, 24 Mar 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3183Branko Krstevski’s portfolio outperformed the best mutual fund manager in the U.S. for the past 10 years. Today, his biggest position is TG Therapeutics (NASDAQ:TGTX) which was up 300% last year. Here’s why he thinks it could double again this year.

Ken:TG Therapeutics is currently the largest position in your portfolio. The stock had a great run last year. What do you see happening this year?

Branko:TGTX saw a huge price appreciation in 2014, over 300%, and I think it will continue its sharp price move during 2015. It is one of my best ideas for a stock-price double in 2015. That’s if it isn’t acquired by AbbVie (NYSE:ABBV) before then.

TG Therapeutics was up 300% last year (Photo Credit: Company)

Ken:Why did the stock do so well last year?

Branko:TGTX’s success comes on the back of their pre-clinical and clinical progress of their two promising immunotherapy drugs TG-1101, TGR-1202 and combinations for treating blood cancers.

Their treatments’ effectiveness and safety profiles presented so far have impressed investors and are offering blood cancer patients improved treatments with less harsh side-affects.

TGTX’s drugs are showing much lower toxicity levels which at this stage would not require them to carry a warning label. Their drugs’ safety profiles look to be best in class right now which offers TGTX a significant competitive advantage.

Ken:Can you tell me more about the two drugs?

Branko:TG-1101 is a third generation anti-CD20 monoclonal antibody and TGR-1202 is a next generation PI3K delta inhibitor. The drugs can be used on their own as mono-therapies or together in combination therapy.

In combination therapy the two drugs are a nice complement, they use a double-pronged mechanism of action to attack the same cancer cells. One drug attacking the outside of cancer cells while the other drug attacks the inside of cancer cells. Efficiency for both drugs looks impressive from Phase 2 trial results.

They will be rolling-out at least another two Phase 3 clinical trials and together with their ongoing clinical trials and several new combo trials to be initiated they will be generating much more investor interest. Their next clinical trials update will be at ASCO in May.

Ken:How far along are they with their Phase 3 trials.

Branko:Enrollments have begun in TGTX’s lead program. This is a Phase3 combination trial with their drug TG-1101 plus Pharmacyclics’ (NASDAQ:PCYC) inhibitor drug Imbruvica for treating relapsed high-risk chronic lymphocytic leukemia (CLL). This combo study will be run against Imbruvica as a mono-therapy. Enrollment completion will be around Q3 2016.

This Phase3 study has a high likelihood of success based on results seen from Phase2. TGTX’s combination demonstrated a superior patient treatment efficiency.

Impruvica as a mono-therapy has an Overall Response Rate (ORR) near 60% while TGTX’s combo showed a higher ORR of 87%. In high risk CLL patients achieved an even higher 95% ORR (19 of 20 patients). The Phase3 study is designed for this high risk CLL patient population.

If these results are repeated at Phase3 TGTX will also likely win Breakthrough Therapy Designation which will be another share price catalyst.

Ken: Isn’t Pharmacyclics about to be acquired?How will that affect TGTX?

Branko: Two weeks ago AbbVie made a $21B acquisition of Pharmacyclics and their drug Imbruvica. This is an unexpected positive catalyst for TGTX because much of their planned treatments are in combinations with Imbruvica. TGTX, with a relatively small $800M market cap may also be on AbbVie’s Acquisition list.

Ken:How many patients suffer from CLL?

Branko:According to the National Cancer Institute, we have around 100,000 CLL patients in the US and around 15,000 new CLL cases are diagnosed every year. The market size for CLL is expected to grow to $3.3B by 2018 across six major markets.

]]>http://www.forbes.com/sites/kenkam/2015/03/24/tg-therapeutics-is-a-best-idea/feed/0Goldman Downgrade Makes MannKind A Buyhttp://www.forbes.com/sites/kenkam/2015/03/20/goldman-downgrade-makes-mannkind-a-buy/
http://www.forbes.com/sites/kenkam/2015/03/20/goldman-downgrade-makes-mannkind-a-buy/#commentsFri, 20 Mar 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3163On the day I published “Afrezza’s Initial Sales Create Buying Opportunity” MannKind closed at $6.52. Less than a week later Goldman Sachs downgraded MannKind to a sell with a target price of $3. With MannKind now starting to recover from the downgrade, now is a good time to buy the stock if you have a 3 year investment horizon.

Goldman is a powerful investment bank and their opinion definitely moved the stock price. The thing is that Goldman’s investment horizon, like most of Wall Street’s, is shorter than 3 years. Goldman’s recommendation to sell may be the right call for short-term traders, but it creates a buying opportunity for those who can give the company a reasonable amount of time to rollout Afrezza, it’s new inhalable insulin.

Afrezza was launched about 6 weeks ago by MannKind’s marketing partner Sanofi.The main reason initial sales have been disappointing is that Afrezza’s label does not allow Sanofi to claim it as being superior to existing insulin pens.The best that can be said is that Afrezza is not inferior.

Those who thought Afrezza sales would rocket out of the gate were expecting that Sanofi would be able to market Afrezza as a medically superior alternative to traditional insulin pens.

While Afrezza has a different pharmacokinetic profile than other insulins, it has not yet been proven that that this will result in reduced complications. It’s going to take years of additional clinical experience with Afrezza before doctors can tell whether there is indeed a reduction in complications.

In the meantime, Afrezza can stillsucceed as a non-inferior alternative to needles. The appeal of “no needles” rates high with patients but in a recent survey of 100 diabetics on Research Now’sdiabetes panel, 91% of respondents were not even aware of Afrezza.

To understand Afrezza’s appeal, watch both of these videos.

]]>http://www.forbes.com/sites/kenkam/2015/03/20/goldman-downgrade-makes-mannkind-a-buy/feed/4Facebook’s First Projected Earnings Decline Will Create Buying Opportunityhttp://www.forbes.com/sites/kenkam/2015/03/13/facebooks-first-projected-earnings-decline-will-create-buying-opportunity/
http://www.forbes.com/sites/kenkam/2015/03/13/facebooks-first-projected-earnings-decline-will-create-buying-opportunity/#commentsFri, 13 Mar 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3139Last year, Facebook’s earnings grew 85% over the previous year. It’s price-earnings ratio of 75 says the market already expects such high growth to continue. But what if earnings for the current quarter actually fell? Tony Mitchell says that would create a great buying opportunity.

Tony: During my interview with Forbes for the 2015 Investment Guide I actually made 2 recommendations but only Toyota made it to the article. Facebook was the other recommendation which I feel just as strongly about.

Ken: Tell me why you believe Facebook is a Best Idea.

Tony: I think Facebook will hit my target price of $100 sometime this year. This would provide a return slightly north of 25% over the next 10 months. But, what I like even more is that I believe the FaceBook will be a buy and hold stock – one that will provide an average return greater than 20% over the next 2-3 years!

The columns with a “+” over them are the quarters were there was a positive earnings surprise. Note that Facebook has beat earnings expectations for the past 7 quarters, yet the stock has been stuck bouncing between $73 & $80 over the last six months.

Ken: Why hasn’t the stock been able to break out of that tight range?

Tony: I believe that there are a number of reasons that may include:

A jittery market that is starting to get worried about valuation levels

Alibaba’s IPO that transferred capitalization dollars from various tech companies to it

Twitter’s recent run that transferred capitalization dollars from tech companies like FB to it

The fear of the increase in expenses that Mark Zuckerberg discussed in the 3rd quarter and 4th quarter of last year.

The fear of the first missed quarter that FaceBook may have. Note that the graph shows the consensus is that earnings for the current quarter will come in below last quarter’s earnings.

Ken: Those sound like legitimate issues. What is the market missing?

Tony: FaceBook is doing all the right things and is like a train on the tracks rolling downhill.

In their last quarter FaceBook reported 3.85 Billion in revenues, up 49%.

FaceBook has beaten the expectations for 7 straight quarters – the trend is your friend!

FaceBook is growing its user base with 890 million avg. daily users – almost 3 times the US population!

FaceBook is just beginning to monetize mobile video and this has so much growth potential.

Instagram has 300 million active users – that is more than Twitter has!

Instagram just received a 33 Billion dollar valuation estimate.

FaceBook recently separated its Messenger into a separate App and although it annoyed me for about 2 seconds as a user, I quickly realized that they actually did make it easy to use with no extra work required by the user.

We haven’t even talked about Oculus yet, but there is so much growth in the future of FaceBook that it is like picking low-hanging fruit.

Ken: Why do you think Alibaba and Twitter’s recent runs from taken value away from Facebook?

Tony: I believe that there is a rotation factor in play where some investors keep diversified by limiting sector investments to x% of their portfolio. Although Alibaba like Amazon could be viewed as a retail stock as much as a tech play, I believe that many would allocate FaceBook, Twitter, & Alibaba all into their tech sector.

Given the capitalization Alibaba earned at it’s IPO, and the recent run in Twitter, the increase in market capitalization has to come from either new money into the market or money from other stocks. Therefore my theory is that money has been rotated by many investors within the tech sectors of their portfolios to invest in Twitter and Alibaba, allowing them to maintain a diversified portfolio by moving monies out of other positions within that sector, such as FaceBook.

]]>http://www.forbes.com/sites/kenkam/2015/03/13/facebooks-first-projected-earnings-decline-will-create-buying-opportunity/feed/4Reduce Taxes, Pass Along Your Values, And Help Your Kids Succeed In Lifehttp://www.forbes.com/sites/kenkam/2015/03/11/reduce-taxes-pass-along-your-values-and-help-your-kids-succeed-in-life/
http://www.forbes.com/sites/kenkam/2015/03/11/reduce-taxes-pass-along-your-values-and-help-your-kids-succeed-in-life/#commentsWed, 11 Mar 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3125Estate planning experts are advising people to give each kid/grand-kid up to $14,000 this year. But, these gifts can do a lot more than reduce your estate taxes. They can be used to pass along your values and give your kids a big advantage in life.

The problem with giving money to children outright is that it often does not have the effect you hoped for. For example, if the gifts are significant over time, the kids could draw the conclusion that they don’t need to graduate from school or get a job. Definitely not what you intended.

But, what if you could use the gifts to create a different set of incentives for the kids that will enable them to go farther and faster in life than they otherwise would have?

This kind of gifting is like giving your kids a financial bicycle. Just as a bicycle enables anyone to travel farther and faster than someone who is on foot, a financial bicycle should enable your kids to go farther and faster in life than they otherwise would have.

But, a bicycle won’t take them anywhere unless they pedal. If for whatever reason some of the kids don’t want to pedal, I’d prefer for the money to go to the kids who are pedaling even if I have to wait until the next generation.

If you are already planning to make outright gifts of $14,000 per kid this year, here are some alternative ways to consider doing it.

Fund Roth IRAs For Your Kids

Kids can start Roth IRAs as soon as they have earned income. By starting young, the power of compound interest is fully harnessed to turn small annual contributions into substantial tax-free wealth at retirement. In addition, helping your kids find ways to earn money so they qualify to make a contribution each year, instills good values that will give them a big advantage in life. Read more…

Pay Your Kids’ Taxes

I remember getting my first paycheck as a teenager and wondering “who is FICA, and why is he taking so much of my money?” It’s easy for kids to question the wisdom of working hard when taxes don’t leave them much to show for their effort. Using part of your annual gift to pay your kid’s income taxes tips the scales back in favor of working.

Cover Their Health Insurance

When I was in high school, I saw even less need for health insurance than for an IRA. After all, health insurance was expensive and I had never been sick. Now that I’m older, I’ve seen many people get stuck in jobs they don’t like because it’s the only way they can get health insurance. Your kids are going to spend a good portion of their lives at work. Doing this will enable your kids to choose careers they love without regard to their health plan.

Reducing Estate Taxes Is Not The Primary Objective

The top federal estate tax for 2015 is 40% but the estate tax exemption is high enough that I don’t worry about it for now. At any rate, who knows what the estate tax rates and exemption will be in the year I pass away.

For me, the primary objective for these gifts is to provide my kid(s) a different set of incentives in life than most kids have to confront.

My hope is that kids who have their health insurance covered, their IRAs fully funded from a young age, and who get to keep all the money they earn are going to be inclined to work hard at finding something they love to do that other people value highly. As long as the kids are pedaling in that direction, the gifts are serving their purpose, even if there is no estate tax benefit.

That is a legacy I would be proud to leave behind for my family!

About my column. Click on the word “Follow” under my picture to be notified when future articles are published. You will then be able to choose whether to be notified after each article is published, or just once per week.

Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.

]]>http://www.forbes.com/sites/kenkam/2015/03/11/reduce-taxes-pass-along-your-values-and-help-your-kids-succeed-in-life/feed/0Apple Target Price Raised To $260http://www.forbes.com/sites/kenkam/2015/03/10/apple-target-price-raised-to-260/
http://www.forbes.com/sites/kenkam/2015/03/10/apple-target-price-raised-to-260/#commentsTue, 10 Mar 2015 13:00:00 +0000http://blogs.forbes.com/kenkam/?p=3113Last September, just before Apple announced the iPhone 6 and the Apple Watch, Eugene Groysman said that the new products created a 25% upside and set a target price of $125. Apple has now hit Eugene’s target price, but Eugene says Apple still has a long way to go. His new target price is $260.

The first time I talked to Eugene about Apple was in 2010 when he said the iPad could push Apple to $300. His split-adjusted target price of $43 seemed pretty audacious at the time. There are now two other Masters who follow Apple — David Canaan, and Raymond Meyers — but when there is news about Apple, Eugene is the one I go to first.

Ken: First lets talk about Apple hitting the price target you set last time we talked. You said the iPhone 6 and Apple Watch would give Apple a 25% upside and now we are there.

Eugene: Yes, but I under-estimated the numbers.

Ken: What did you underestimate.

Eugene: Sales and demand. After the iPhone’s preliminary numbers for November came in they broke records. Now, with the release of the Watch, and the soaring sales of the new iPhone models, I have a target of 260.

Ken: Lets talk about the iPhone first. What is driving sales?

Eugene: I believe its what we talked about last time, people were just waiting for the new larger versions, and they got two. The deal with China Mobile, which opened up 700 million new customers. From what I have seen, people love the new models.

Ken: How is that deal working out with China Mobile?

Eugene: I thought Apple would garner a large share right away, however, it has been taking a bit longer.

Ken: So its been a little bit of a disappointment?

Eugene: Apple took 25.4% of the urban china market. Up from 17.4%

Ken: The Apple Watch still has not been released, but the Watch is already a bit different than what they announced.

Eugene: There are three types of Watch. Apple Watch, Apple Watch Sport, and Apple Watch Edition. The Apple Watch and Apple Watch Edition will have Sapphire glass. The sport model will have strengthened ion-x glass.

Ken: But it seems like Apple is backing away from positioning the watch as a medical platform because a lot of the healthcare the apps they talked about are not going to be there at the launch. For example, they talked about monitoring blood glucose levels but I think they will need the FDA’s approval before they can market that.

Eugene: True, I think that its taking longer than expected to get those apps up and running.

Ken: FDA approval is not a short delay. Without the medical applications, it seems like they are focusing on making the Watch a fashion accessory

Eugene: Well for apps it might not take as long to get FDA approval as for a new drug.

Ken: Well, they first have to show that the data they get from the sensors in the Watch are reliable from one person to the next. That is not easy. They can’t market it as part of a medical monitoring system without FDA approval. It seems to me like no one thought about the FDA issues when they introduced the Watch.

Eugene: True

Ken: So, if they have to sell it as a fashion accessary, it is still going to be as successful as you thought?

Eugene: I am not counting on the watch to be a major component of growth until later this year or early next.

Ken: That’s interesting. On what do you base your new target price of $260?

Eugene: For this fiscal year, I see net income of $46 billion on sales of $214 billion. up from $182 billion last year.

Eugene: There is talk of a larger one. It would be used in the corporate world as people need larger screens when doing work remotely, and that is what they will need if they want to replace the laptop. CNN did a piece on it on March 5.

Ken: To summarize, you think the current iPhone family (6 and 5) are enough to power the stock to $260 with little contribution from the watch or iPad until later this year.

Eugene: I wouldn’t say little, but not equal. I would say a distant second and third. Lets put it this way, Apple has ordered 6m units of the watch. If they sell out that adds $3 billion to revenue. However, if it fails, it won’t be a major blow since it is a new product with little impact on the overall revenue mix.